Tuesday, December 06, 2016

With the election of Donald Trump, Europe’s climate
and energy policies may face drastic upheaval. It doesn’t look like top policy
makers have noticed, given that EU Climate and Energy Commissioner Miguel Arias
Cañete reacted to Trump’s victory by tweeting that “the world
can count on the EU to continue to lead on climate”.

Really? If Trump does withdraw from the Paris Agreement on climate change, or
even from the 1992 UN Framework Convention on Climate Change or,
if he simply ignores international climate commitments, it’s not very
likely that Europe’s industry would just sit by and watch how Europe’s
competitiveness is coming under strain.

At Open Europe we’ve made clear how any advantages
from EU climate change rules are closely dependent on what the rest of the
world does. For example, the EU’s so-called “20-20-20 Targets” are about making
sure 20% of EU energy provision is coming from renewables. But since
forcibly adopting renewables pushes up business costs, unless the whole world
walks in lockstep, the EU’s overall competitiveness will comparatively decline.
Despite the fact that the United States may only be responsible for about 15 percent of CO2 emissions, its economic competitiveness
is still the central anchor point for the world economy. An Open Europe study from 2014 estimated the cost of adopting the EU’s
climate change targets at an extra £220,000 for a British SME.

Is there anything wrong with renewables? Not at all.
If only Europe managed to get all its energy from that particular energy
source, it would no longer be dependent on Saudi Arabia or Russia. Renewables
are in itself a much more decentralized kind of energy generation than
traditional forms of energy provision, so an energy market dominated by
renewables is likely to be much freer and more competitive than the current state-controlled energy markets currently operating in Europe.

At least, that’s the case if we’re speaking about
economically viable renewables, which they aren’t yet. Despite progress on bringing down the average
price per megawatt generated through renewables, many traditional competitors
still have the upper hand, partly due to subsidies, which drive up the cost of
electricity indirectly, but also because fossil fuel prices are at historic
lows. Another problem with renewables is that they aren’t all that
environmentally friendly to begin with. Hazardous materials are needed to produce solar panels while the
environmental downsides of wind turbines have also been documented.

Of course renewables are making rapid progress, and so
is battery and storage technology, which can help renewables deal with the fact that
electricity transmission networks aren’t sufficiently adapted to cope with
their specific pattern.

At the same time though, fossil fuels are making
important headway as well. In India, an Anglo-Indian company developed a revolutionary technique to capture carbon emissions
from coal-fired power stations – a technique that has been shown to work on a
commercially viable basis. The clean coal debate was restarted this year, after
both candidates in the U.S. presidential race came out in support of
it.

Since coal remains the world’s single biggest source
of electricity, developing ways of reducing its environmental impact should be
at the top of the agenda. Despite what naysayers think, fossil fuels aren’t
going to disappear anytime soon. In fact, coal-fired electricity generation is projected to rise from 8.6 trillion kWh in 2012 to 9.7 trillion
kWh in 2020 and 10.6 trillion kWh in 2040 as developing and developed nations alike are ploughing billions into building new plants. G20
nations have spent $76 billion for coal projects between 2007 and 2015 and are
currently investing $24 billion more in fossil fuels.

This brings us to the one important lesson that should
be drawn from energy policies: it’s not wise to declare that only one
particular kind of energy production can be environmentally friendly and
economically viable. As long as the principle that “the polluter pays” is
respected, coal, renewable, nuclear and other technologies should be allowed to
compete with each other.

With Trump’s victory, it’s likely that renewables in the US will be subject more
than ever to market forces. It’s unlikely Europe won’t somehow will be forced
to follow suit. Therefore, Europe needs to become open minded about the issue
and accept that just as technology could make renewables economically viable,
it could make fossil fuels environmentally friendly.

Tuesday, November 22, 2016

Unsurprisingly, in Brussels, people are not thrilled with Donald Trump’s election as new American President. Here’s an overview of what it means for the EU:

TTIP

The EU-US trade deal TTIP, which is still formally under negotiation, is already facing manyhurdles in Europe. Now it is also facing a possible US veto, given Donald Trump’s scepticism towards trade deals. Current EU Trade Commissioner Cecilia Malmström has said that “we frankly don’t know” if Trump wants to continue negotiations, while former EU Trade Commissioner Karel De Gucht thinks “TTIP is now dead”. European Commission President Juncker has urged Trump to provide some clarity on the issue, adding, “I do not view that as something that would happen in the next two years.”

Trump has a history of wavering and U-turning but it’s hard to see how he would get away with breaking his protectionist promises, although of course the Congress and his own Republican Party are likely to serve as an obstruction.

Defence and Foreign Policy

US complaints about European NATO member states relying too heavily on US defence support are not new, but never before have they featured so prominently as with Trump, who has warned that “the countries we are defending must pay for the cost of this defence. And if not, the US must be prepared to let these countries defend themselves.” He even made US defence of the Baltics dependent on this, saying that if Russia attacked them, he would decide whether to come to their aid only after reviewing whether these countries “have fulfilled their obligations to us”.

Predictably, the usual suspects in Europe have used Trump’s elections to further the integrationist cause. Juncker has stated that the US “won’t look after Europe’s security for ever… We need a new approach to building a European security union with the end goal of establishing a European army.”

However, Juncker conveniently ignores the real reason why there is no EU army. This has little to do with America providing resources for Europe’s defence, and everything to do with the strong opposition within Europe itself against the idea.

If countries are already reluctant to pay for financial transfers or accept that the EU can tell them how many refugees they need to take, they naturally don’t enjoy the idea of being forced to send their young people fighting abroad if their own government is outvoted by foreign leaders. True, a lot of lip service has been paid over the years to the need for closer defence cooperation among EU member states, and we have “Eurocorps” and all kinds of other forms of voluntary cooperation, but none of this goes beyond what NATO already does. NATO itself consistently stays clear from the supranationalism pushed for by the European Commission. A number of EU member states, including the Netherlands, have already rejected the plans, so if Trump is serious (which is unclear, given that his running mate Mike Pence is more of a hawk towards Russia), EU member states will strengthen their own defence capacity first.

President-elect Trump hasn’t disclosed yet how he plans fight IS, as he thinks this needs to be a “surprise”. But Vice-President elect Mike Pence has already said that “Turkey is US’s most important ally in the region”, and that the US will be renewing good relations with Turkey. One of the first people Trump called after his victory was Turkish President Erdogan, so it doesn’t look like the EU has gained more leverage versus Turkey as a result of the election.

Monetary and fiscal policy

The Eurozone should be well aware that its fate is strongly linked to how Trump intervenes in monetary policy, because he’s said he won’t shy away from doing so.

Trump has been saying he’d print money to finance government spending, calling himself “the king of debt”. But there’s some confusion. While he has attacked the Fed for “keeping the rates down so that everything else doesn’t go down”, saying it “should have raised the rates”, back in May he warned that “if interest rates went up, our economy is not doing well at all. And it’s going to hurt the economy very badly. If interest rates went up, it would be a disaster”, specifying “I am a low interest-rate person”.

At least the markets seem to believe that Trump means higher interest rates. In the week after his election, for whatever reason, interest rates, which are not entirely driven by the Fed, but also by the market – are rising.

This matters in a crucial way for the Eurozone, where the ECB also only has a limited impact on interest rates, which are subject to the global environment that is partly controlled by the Fed. If the current trend of increasing interest rates continues, cash-strained Eurozone governments may face a problem, ultimately having to appeal to Eurozone “solidarity” again. We all know what that means: weeks and months of crisis meetings which ultimately culminate in bailout packages that mostly serve to kick the can down the road without fundamentally addressing the issue, while at the same time poisoning relations between European countries and propelling Trump-style anti-establishment parties to power.

Climate change

It’s no big secret that Trump thinks “global warming was created by and for the Chinese in order to make US manufacturing non-competitive.” There are some question marks about whether he has the legal power to withdraw from the Paris Agreement on climate change, but he’ll probably try to do so, with a number of lawsuits from Democratic-run states likely. If that takes too long, he’s able to withdraw unilaterally from the 1992 UN Framework Convention on Climate Change itself within one year. Either way, he may just ignore international climate commitments. This would increase the opposition in Europe against respecting those, as it would put Europe’s industry at a disadvantage, despite the fact that EU Climate and Energy Commissioner Miguel Arias Cañete has reacted to Trump’s victory by promising that “the world can count on the EU to continue to lead on climate”.

Trump has also pledged to cancel billions in payments to UN climate change programs, again likely to increase doubts in Europe about whether it should pay the rest of that bill. With Open Europe, we’ve made clear how any advantages from EU climate change rules are closely dependent on what the rest of the world does, which could be another reason for EU climate policies to be put into question.

Brexit

Trump and his allies have raised doubts about US protection of the Baltics. This in turn boosts the UK’s value as a military power in Europe, and that’s something Britain can use in Brexit negotiations. On the other hand, of course, the US election result may fuel the concerns among EU leaders about the prospect of having their own difficult domestic elections, and therefore prompt a more intransigent stance with regard to Brexit. Either way, a positive UK-EU relationship in a post-Brexit world will be needed, and Trump may upset that.

Nonetheless, the fact that the new President of the United States is an open supporter of Brexit will only further boost the case for it and also strengthen the argument that the EU has gone the wrong way and is in dire need of reform.

Populism

Trump’s victory is a great boost for the so-called “populist” forces who’re haunting Europe’s mainstream politicians and were among the first to congratulate Trump. On Sunday 4 December, Austria may well elect a far right President, while Italy could vote no against a constitutional reform – which could lead to the resignation of Italian PM Renzi, with the anti-establishment (and anti-euro) Five-Star Movement standing a fair chance of getting into power at the next general election.

In March 2017, the Netherlands is electing a new Parliament. While the far-right populist PVV formation of Geert Wilders was for a long time polling as the largest party, he has been recently losing ground a bit. But the situation is unstable, as Wilders is currently being tried for inciting hatred and as a result of the Dutch government’s refusal to respect a referendum vote against the EU-Ukraine Treaty. Then there’s also Marine Le Pen in France, who doesn’t stand a great chance to be elected but currently looks likely to at least make it to the final round.

Conclusion

Europe’s mainstream politicians should maybe look in the mirror and acknowledge that, at least when it comes to the prevailing anger against the EU, they bear part of the responsibility.

Instead of considering euro exits and government defaults as a solution, Eurozone politicians decided to organise transfers between countries that weren’t popular in countries paying for it nor in countries that had to respect the condition to allow intervention in domestic spending.

During the refugee crisis, mainstream politicians dragged their feet, resulting in chaos. It took until spring 2016 for EU governments to take strong action, which has resulted in refugee drownings ending between Greece and Turkey, but until then the EU’s focus was to harmonise asylum rules and try to impose refugee quotas that are pointless, given that we’re speaking of countries sharing a passport free zone.

The chaos and the EU’s eagerness not to waste a good crisis served as a boost for populism in the countries of the Schengen zone, which almost collapsed. It also may have helped to make the British even more hostile to the EU than they already were, even though the UK isn’t even in Schengen. In the same way, Trump’s anti-establishment victory may now have much more of an effect outside of the US than mainstream politicians assume.

Friday, November 04, 2016

As some may remember, the Netherlands had their
own mini-version of Brexit in April of this year, when a majority of Dutch
voted against the EU-Ukraine Treaty in a
non-binding referendum which had been triggered by campaigners eager to give
the establishment a goodkicking. Something in which they succeeded.

Since then, Dutch Prime Minister Rutte has
tried to find a way to avoid that the Netherlands would not have to veto
ratification. It's the only EU member state which didn't agree to the Treaty
yet.

Rutte's plan is to secure a “legally
binding declaration”
to the Treaty at the EU Summit in December, which should stress that it doesn't
lead to Ukrainian EU membership or the Netherlands providing any extra funds to
the country beyond those already committed and that it also doesn't oblige
Dutch military cooperation with Ukraine. Such declarations are a well-established
practice at the EU level to deal with cumbersome member states and have been applied for example to deal with the Irish
no – vote against the Lisbon Treaty and more recently, with Wallonia's opposition to the
EU-Canada trade deal CETA. There always are differences as to how “binding”
such declarations are : sometimes under national law, sometimes at the EU
level, sometimes only according to “international law”, giving lawyers a field
day, helpfully confusing any critics.

Whereas the “EU27” seem happy to give Dutch PM Rutte whatever
declaration he needs and Ukraine isn't needed to sign anything, Rutte's
particular problem is that the coalition of his centre-right VVD with the
centre-left PvdA doesn't enjoy a majority in the Dutch Senate, which is also
needed to pass the EU-Ukraine Treaty. So far, of all the opposition parties,
only the centrist, EU-federalist D66 party has suggestedit will support Rutte's solution while the
Christian democratic CDA hasn’t committed to support it just yet. Its leader Sybrand Buma has stated that Rutte's
solution is unacceptable, saying: “if the Lower House ignores [the referendum
result], we're fooling the people” as the declaration “would make clear that things that
aren't in the Treaty really aren't in the Treaty” while it “does not change the
Treaty. Still, it’s rumoured that the party would allow its
Senators, which seem more keen to approve the deal than the party leadership, a
free hand in deciding how they'll vote, so a solution may be near.

Still, the legislative process in the Dutch
Parliament will only be activated after Rutte has secured his declaration at
the EU Summit of 15 and 16 December, so it’s not excluded that there isn’t
enough time to complete it before the Dutch legislative elections in March
2017. Those may result in less support for the ruling coalition and complicate
the proposed solution.

This all happens to the backdrop of how the
“European Constitution” was passed by the Dutch Parliament in the form of the Lisbon Treaty, despite a no
vote in the historic Dutch
referendum in 2005.

The whole issue is obviously made even more
complex by the fact that many Dutch died in the attack on the MH17 plane over Ukraine, which investigators
have blamed on Russia, while there's the ever
more assertive policies of the Kremlin, which would without any doubt use a
Dutch veto against the EU-Ukraine Treaty in its propaganda. Also, currently,
the agreement is being applied on a provisional basis and a Dutch law
withdrawing the mandate for the Dutch government to sign would in theory mean
that the Treaty can no longer be provisionally applied but there is no
precedent for that. That said, these considerations may trump concerns that
ignoring a popular referendum on an EU issue is toxic and may only contribute to
Euroscepticism.

If the Dutch government would effectively veto
the EU-Ukraine Treaty, it looks like it would be the first time since
the Swedish no
vote against
joining the euro in 2003 that an EU referendum which went the wrong way for
Brussels would be respected. Thereby the jury is still out for Brexit, which
hasn't happened yet, and for the Danish no vote against giving up a range of
national opt-outs from EU cooperation. In the latter case, the EU Commission so
far refuses to be flexible so Denmark can stay in Europol
while keeping its
opt-outs. The Swiss 2014
referendum vote to
restrict freedom of movement from the EU, on the other hand, is about to be
ignored, as the
Swiss Parliament seems keen not to open the EU-Swiss arrangement and risk its
exemption from ECJ rule.

Now we can likely also add the Dutch referendum
on the EU-Ukraine Treaty to the list of referendums that are being ignored,
just when it wouldn’t have been too hard to respect the will of voters.
Redrafting the Treaty as a mere trade arrangement is something the Netherlands
would agree to. It would keep the Treaty largely intact, while addressing many
of the concerns expressed by Dutch no voters. The apparent refusal to drop
relatively empty pledges about “increasing” Ukrainian participation to
“EU-led civilian and military crisis management operations” may well come back
to haunt the European Union when the Treaty becomes yet another symbol of how
it may not be willing or even capable of addressing the concerns of citizens.